Lexicon

Here are some of the terms that may come up in your estate planning discussions. Estate vary from state to state. This paper is not intended to be legal advice, so if you have any questions about these definitions and descriptions, please contact your own attorney:

> Will (Last ) - a legal document signed in front of witnesses. The Will is intended to control the distribution of the assets that may be in the name of the deceased person (also call the “Decedent” or “”) at the time of death. The Will also designates one or more people to be responsible for handling the administration of the estate (see “Executor/ ”, below).  - someone who is named to receive benefits under a provision in a Will  Executor/Personal Representative (“PR”) - person who is named in a Will and who is appointed by the Court (in NYS, referred to as Surrogate’s Court; in PA it is the “Orphan’s Court”) to handle the administration of the assets of a deceased person. Once appointed by the Court, the Executor/PR is the legal representative of the deceased person (the “Testator”) and can transact any business, pay bills, sell assets, file tax returns, and distribute the estate to the beneficiaries.  Probate - the legal process of delivering the originally signed Will to the Probate Court and proving to the Court’s satisfaction that this particular legal document is the most recently signed Will; and, that it was properly signed in front of witnesses by the person at a time when he/she was competent and not under any improper influence from any third party. When the Court is satisfied that all of the formalities have been followed and that there are no questions as to the mental capacity of the Testator at the time the Will was signed, the court “admits the Will to Probate” and appoints the person named in that Will to act as Executor or Personal Representative.  Probate Property - assets that are in the decedent’s name at death and are governed by and pass under the terms of the Will.

> Living Trust (Lifetime Trust) - a trust that is set up during lifetime that is most commonly used to benefit the person who set it up and a spouse and/or other loved ones.  A trust is essentially a between the person who sets it up (sometimes called the , Grantor, Creator, or Trustor) and the person or bank that is named as the . The Trustee agrees to hold, invest, administer, and distribute the assets that are transferred into the name of the trust, all according to the terms that

are in the trust instrument. The fact that both the Settlor and the Trustee sign the trust document is why it is called a trust “agreement.”  Frequently, the persons who set up a living trust for themselves will act as their own initial .  A living trust is frequently drafted as a “Revocable” trust which, under the terms of the trust agreement, can be changed, modified or terminated (revoked).  Only assets that are re-titled into the name of the Living Trust before death will be controlled by the terms of that trust document and can pass to subsequent beneficiaries without having to go through, and be subject to some of the delays in, the Probate process referred to above. The assets that are held in this type of trust are said to “avoid probate” which is sometimes seen as a more costly and slower process of managing the assets of someone who has died.

> - a trust that is described and created within the terms of a Will.  This type of trust is not funded until: 1. The creator of the trust has died; and 2. The Will is admitted to probate; and 3. The probate estate is ready to be distributed (usually after the decedent‘s debts and any estate or income taxes have been paid).

> Charitable Trust - a trust that can be created either during lifetime or after death (testamentary charitable trust) that makes a provision to pay out for either currently or after a period of time or specific lifetimes. The trust can also be drafted to benefit family or other individuals who can receive a stream of income for a term of years or for their lifetimes (“Charitable Remainder Trust”).  The advantages are that tax deductions can be obtained when the trust is established and funded;  In addition to tax benefits, loved ones can be provided with lifetime support at stated levels (charitable remainder trust).

> Power of Attorney - a document that is used to appoint someone as an agent who is empowered to manage the financial (but not health care) affairs of the person who signs the document – that person is sometimes called the “Principal.”  Durable power of attorney - is a phrase that indicates that the Power of Attorney is effective even if the Principal becomes incapacitated and no longer able to change it.

 Attorney in Fact - is the name given to the person who is designated as the agent to act under the power of attorney.

> Health Care Proxy - a document that authorizes a person (“Health Care Agent”) to make health care decisions for someone else and to receive medical information from doctors, hospitals and other health care providers. It is important to include language that allows the Agent to have access to medical information that otherwise would be limited under Federal health privacy laws included in the Health Insurance Portability and Protection Act of 1996, known as “HIPPA.”

> Living Will - this is a confusing term that is still frequently seen and used. It has nothing to do with a Last Will and Testament or a Living Trust (see above). It is more properly referred to as a “Health Care Decisions Declaration.” This is a companion document to the Health Care Proxy. Whereas the former appoints an individual as a proxy or agent who can make Health Care Decisions, the Living Will gives actual guidance as to how the Agent’s discretion is to be exercised–such as: do not resuscitate me, or do not use life prolonging treatment if my condition is imminently terminal, but provide medication that will minimize my pain; withhold feeding and hydration tubes, etc.

> Beneficiary Designation Form - a form that is used to name and designate beneficiaries of assets from life insurance policies or from Retirement Plans (Individual Retirement Accounts–IRAs; or contributory retirement plans at for-profit employers (401(k)) or not for profit employers (403(b)), or annuity agreements. These benefits also avoid probate because they pass directly to the beneficiaries without going through the Will.

> Transfer on Death or Pay on Death accounts - this is an account registration option that allows bank accounts, and securities (stocks and bonds) accounts that are held with a broker, to pass to one or more named beneficiaries without those assets first having to pass through the decedent’s “Probate Estate” (pass under his/ her Will). To accomplish this, the account owner (sometimes called the account “holder”) must complete a form that names the persons whom the account owner wishes to receive the assets after his or her death.

> Joint Ownership with right of survivorship - many people set up bank accounts or own real estate (land and houses) with more than one person shown to be the owner. The account or deed that conveys real estate can be drafted to direct that on the death of one of the 2 named people, the other is intended to own the whole account or property. Usually, no further legal proceedings are required to transfer legal title after the death of one of the owners. These assets are outside of the

control of the terms of the Will (although with joint bank accounts, in some states, a later dated Will can overcome the title on the bank account, but not real estate).  Care should be taken if the intention is merely to allow another person to write checks for the purpose of paying bills for the account owner. If the account owner wants the remaining assets in the account to pass to other persons (perhaps those who are named in the Will), then, the account should not be established as a “joint” account. Better to use the bank’s form that adds an additional signatory or agent to the account. This way, they will have access to but not ownership of your bank account assets.

> Estate Tax - a transfer tax that is imposed by the Federal and/or State governments on assets that pass as a result of someone’s death. Currently there is an exemption that eliminates taxes if the estate is under $11.4 million, for persons dying in 2019 (U.S. Estate Tax); however, about 14 states have their own estate tax laws, and an a few others have an “inheritance” tax that is assessed at varying rates depending on the relationship that the decedent had with the person who inherits the money. Assets that pass to a spouse or to a charity are usually exempt from the tax at both the Federal and State levels.

> Tax - a tax imposed by the Federal or State Governments on assets that are transferred during lifetime. New York State does not have a gift tax. The Federal estate tax exemption applies as do the exemptions for transfers to a spouse and charity. In addition, minimal (under $15,000 per year) are not reportable.

The information included here is not intended to be legal or tax advice and may not be relied upon for tax decisions you wish to make. Always contact your tax or legal advisor to see if the ideas discussed in this article are appropriate for you.